Why 95% of Indian Traders Lose Money?

In this session, we will answer a very important question: Why do 95% of the Indian traders fail?

95% sounds like a pretty high number and sometimes people don’t believe it. So here, read this.. the CEO of Zerodha, Nitin Kamath, has publicly shared that over 1 year, over 99% of the traders lose money, 0.99!!

So, the question is: What’s going on? Where are these traders going wrong? How can a beginner avoid making these mistakes?

So, let me tell you from my experience the top 7 reasons why most Indian traders fail and what you can do to survive in this market.

1- No Strategy

The Number #1 reason why traders fail is that they have no strategy.

A lot of traders don’t want to acknowledge this but the fact is they have no idea what they are doing. Their idea of a strategy is some combination of technical indicators that they have heard or read somewhere.  

I am sure you must have seen some of them: strategies based on super trend indicator, or RSI or MACD or some combination of indicators. The reality is that these are not strategies; these are just technical setups and no one can consistently make money using these setups alone.  

Professional traders, on the other hand, use time-tested strategies that are based on the behaviour of the market and the market participants; something that gives them an edge over other traders. We will be making more videos on trading strategies and so don’t forget to subscribe.

2- Over Leverage

The second reason why traders fail is that they take trades way beyond their capacity.

I have seen traders with Rs.1 lakh of capital taking trades worth Rs.10 lakh and even Rs.15 lakhs. These guys want to get rich quickly and, in that greed, they take excessive leverage.

Their mindset is very similar to that of a gambler who puts all his money on one bet and if he gets lucky, he can make a lot of money but if he loses, the game is over and he’s out.

Professional traders, on the other hand, don’t gamble; in fact, they are the best risk managers you will ever find.

So, if you want to be a professional trader, start thinking like a risk manager, not a gambler.

3- No Emotional Discipline

The third reason why traders fail is that they have no emotional discipline.

They are driven by emotions rather than logic. In one single day, they experience all kinds of emotions: they get excited, they get impatient, they get frustrated, they get confused and yes, they become greedy and fearful.

See, everybody has emotions but it is one thing to have them and another to act on them.

Professional traders know that acting on emotions is a sure shot recipe for failure. They understand that trading is a business and it should be treated as such.

What I have realized is that trading should become as boring and as rule-based as possible so that your emotions can never take over your rational brain.

4- Not Learning from Mistakes

The fourth reason why traders fail is that they don’t learn from their mistakes. They keep making the same mistake over and over and sometimes even after realizing them.

For example, a good friend of mine used to take trades right at the market opening -exactly at 9:15. I explained to him several times that the market is extremely volatile in the first 10 mins and therefore it is not a good idea to trade at the time.

He just couldn’t resist himself from taking those trades as he felt compelled to take trades. Only after making this mistake for several months and losing a lot of money, he finally realized that his compulsion to trade was going to ruin his career as a trader and he stopped doing that.

So, if you want to be a professional trader learn to do the post-mortem of every trade you take- what went right, what went wrong and what could have been done better. Find every mistake you made that can be fixed and promise yourself not to make those mistakes again.

Recommended Read: 7 Deadly sins in Intraday Trading

5- Trading Overhyped Stocks

The fifth reason why traders fail is that they trade overhyped stocks

They trade stocks like Vakrangee, PC jeweller, DHFL, Suzlon, Reliance Communications, Unitech etc, – all the stocks that are making news for the wrong reason or are penny stocks.

Traders see these stocks going up or down some 15-20% in a day and they just get fascinated with them. Everyone around them seems to be talking about the same stock so their fascination even grows higher. They start to feel that everyone is making money on these stocks so why should they be left out.

Every once in a while, they do get lucky in these trades but for every 1 profitable trade, they also take 10 other unprofitable trades. So, at the end of the day, they just lose money.

Professional traders stay away as far as possible from these stocks because they know that a lot of time these stocks are manipulated by operators and they are not worth trading.

6- Going Against Strong Trend

The sixth reason why traders fail is that they go against a strong trend. When the market starts crashing, they tend to buy and when the markets are moving up strongly, they tend to short.

Let me tell you a personal story from my early days of trading.

Some 15 years ago, one day, the stock of Nalco was falling. Not only Nalco but the whole metal sector and the market was down. So, I thought, well, Nalco is a big company and its stock has already fallen 10%. How much more can it fall?

So, I bought Nalco. But then it fell further, so I added more to my position and I kept doing that five more times. Needless to say, I was completely wrong and that one trade cost me over 70,000 rupees.

That was a big loss for me but it taught me a very important lesson: never stand against a strongly trending market.  

7-Giving Up Easily

The seventh reason why many traders fail is that they give up easily.

Traders come to the market; try trading for a couple of months, get disappointed by initial failures and just give up. What they don’t realize is that trading is a skill, just like any other skill, it requires time to learn.

What would you say to a first-year medical student who is thinking of quitting MBBS because he thought he could start earning money by that time? You’ll say, first finish your college, gain some experience and then you’ll have all your life to make money.

That is the power of building skills.

My Advice

In the same way, my advice to every beginner is to first learn the skill of trading.

It takes a good 6 months to a year to get good at trading. If you quit before that, you are not giving your dream of becoming a trader a fair chance.

Don’t come to the market with the expectation that you would be profitable in the first month itself because that’s a very unrealistic expectation.

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